The need for multilateral action

OPEC Bulletin Commentary November 2015

On Friday, December 4, 2015, the world’s media will once again descend on Vienna to witness and report on the latest round of OPEC Ministerial talks. They are indeed no stranger to the Austrian capital. In fact, the Organization’s last few meetings have attracted record interest such is the precarious state of the global oil market right now. For certain on this day, the basement of OPEC’s eight-storey Secretariat in Vienna’s historic first district will be buzzing with activity as reporters grapple to get prized exclusive comments and reaction from OPEC’s Oil and Energy Ministers as they review and discuss the latest oil market developments.

At the same time, cameramen will jockey for position to get the best angle for their shots of the high-ranking delegates. One has heard of the proverbial media circus. Well this is it, with abandon! But by now, after what will be 168 such Meetings, arrangements for the customary end-of-year parley run like a well-oiled machine, for want of a more apt description. The Meeting of the OPEC Conference may come and go in just one day — but it always leaves its mark!

If there is one thing OPEC cannot be accused of, it is a lack of international exposure — to its policies, aims and objectives. Its very being is a main news item! As the Organization has grown in stature over its 55 years of existence, then so too has its importance as one of the most relevant, purposeful and responsible international organizations on the planet. Such is its global standing today that the world’s leading media houses assign teams of journalists to shadow the Organization and report on its every move. Needless to say, this attention has spiraled over the last 14 months or so, what with the latest problems to hit the oil market.

With international crude oil prices today struggling to stay above $40/barrel, it is proving to be a very challenging time for the oil sector and its primary stakeholders. Fast-reverse to the first half of 2014, when prices were averaging around $100/b, and one can fully appreciate the problems the industry is facing today. In particular, there is now a real danger the production capacity additions needed to meet future demand will be in jeopardy. Ironically, that could result in prices eventually spiking in the other direction.

As for the numerous oil companies that service the industry and supply the various markets with raw crude and finished products, they have seen their operations turned on their head. Profit margins sharply reduced, development budgets slashed and workforces decimated by redundancy — in most cases it has led to huge rationalization of existing activities. But such is the general acceptance of the volatile nature of this industry there is no remonstration, no real sense of bad feeling and no outward evidence of panic, despite the obvious seriousness of the situation. It is all rather accepted as matter-of-fact. Maybe that is because these experienced and hardened entities, who refer to the latest market downturn as “the next cycle”, are just too busy rolling up their sleeves to plan for their survival, working tirelessly to find ways and means of adapting to the prevailing market conditions. By now, they are used to it.

As Bob Dudley, the longstanding Chief Executive Officer of oil major BP, told the recent Kuwait Oil and Gas Show and Conference, this was the fourth time he had seen oil prices collapse in his career. “While they created real stress at the time, the industry adapted and recovered each time,” he said in a keynote address. But such periods of low oil prices require increased efficiency and heightened innovation. “That means companies need to demonstrate rigorous cost and capital discipline as they look to generate value in a lower price environment,” commented Dudley, adding that the age of ‘easy’ oil “is behind us — there are new challenges to recovery.”

Since its inception, OPEC has been responding to the challenges and various changes thrust on the international oil market. But the 21st century threatens to take this to another level, one where technology and innovation become critical in helping to satisfy ever-stringent environmental demands on the exploitation of fossil fuels. The world needs to be kept safe and it needs to be kept clean for future generations — and rightly so. But this will come at a cost.

And as OPEC has continually repeated, the only way forward in meeting these demands and other challenges is through concerted cooperation among all the main parties that make up the international oil and gas sector. That means serious dialogue, primarily among the producers, but also between the producers and the consumers. History tells us that the current oil price regime will not last. But is it not better for the stakeholders that have a vested interest in providing a stable oil market to join forces and bring about a measured and orderly recovery?